Your road map to success

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Intro: Why Everyone Needs a Business Plan # 1: SUM IT UP Why executive summaries are the most important part of your plan 8 # 2: COMPANY OVERVIEW Target your market 14 # 3: PRODUCTS AND SERVICES What are you selling? 18 # 4: FIELD NOTES Understanding and explaining your industry . 24 # 5: MARKETING SMARTS A marketing strategy primer 28 # 6: COMPETITIVE ANALYSIS Identifying competitors 34 # 7: TEAMWORK Who’s who on your team . 38 # 8: OPERATIONS The inner workings of your business 44 # 9: MONEY GAME Explaining the financials 48 # 10: EXTRA, EXTRA Deciding what goes in your plan’s appendices.62 # 11: BUSINESS PLAN RESOURCES Extra tools to get you started .66 TABLE OF CONTENTS ©2007 Entrepreneur Media Inc. All rights reserved. Y OUR R O AD MAP TO SUCCESS ■ 3 4 ■ Y OUR R O AD MAP TO SUCCESS T HE TR UTH IS THAT MANY SUCCESSFUL BUSINESSES WERE STARTED WITHOUT BUSINESS PLANS . In fact, the phenomenally successful Martha Stewart told us at Entrepreneur that she never wrote a plan for any of her busi- nesses. Now, while that may be fine for the likes of Martha, it’s generally not a good idea. If you’re going to start a business, the smartest approach is to write a business plan. Now don’t worry—the process is not as onerous as you might think. Af t er r ea ding R oad M ap t o Suc c ess , y ou ’ll kno w pr ecisel y what you need to do to write a winning business plan. So wha t exactly is a business plan? It’s simply a written description of your business’s fu ture—a document that tells what you plan to do and how you plan to do it. Business plans can help per form a number of tasks for those who write and read them. Perhaps the most important use of a business plan is for you, the entrepreneur, to document your vision and your strategies. Think of your business plan as a playbook of sorts, where you lay out your Intro: WHY EVERYONE NEEDS A BUSINESS PLAN Y OUR R O AD MAP TO SUCCESS ■ 5 plays for the upcoming year. But it is a living document, one that needs to be consulted—and updated—often. All entrepreneurs should write a business plan, but if you are trying to raise investment capital, a written plan that conveys your vision to potential investors is a must. Business plans may also be used to attract key employees, prospect for new business and deal with suppliers and vendors. Having said that, there are some generally accepted conventions about what a full-grown business plan should include and how it should be presented. Your plan should cover all the important matters that contribute to making a business a success. These generally include: ■ Your basic business concept ■ Your strategy and how you plan to implement it ■ Your products and services and their competitive advantages ■ The markets you’ll pursue ■ The background of your management team and key employees ■ Your financial situation, including your sales projections, expenses and financing needs Your business plan needs to be written in plain English—the plainer the better. You’ll also need to include a lot of numbers for budgets and other financial reports. Tables, graphs, draw- ings and photographs are also not uncommon. A business plan is a place to stick to facts instead of feelings, projections instead of hopes, and realistic expectations of profit instead of passion. Keep this in mind while writing your plan and you’ll have a better chance of injecting it with perhaps the most important compo- nent of all: credibility. How Long Should It Be? A typical business plan runs 15 to 20 pages, but some can be as long as 100 pages, depend- ing on the c omplexity of the business. If you have a simple concept, try to express it in as few words as possible. On the other hand, if you are proposing a new kind of business or even a new industry, it may require quite a bit of explanation to get the message across. The purpose of your plan also determines its length. If you want to use your plan to seek millions of dollars in seed capital to start a risky venture, you may have to do a lot of explain- ing and convincing. If you’re just going to use your plan for internal purposes to manage an ong oing busines s, a much mor e abbr e viated version is fine. When Should I Write It? N ow is as good a time as any. A business plan is a great way to explore the feasibility of a new business without actually having to start it. A good plan can help you see serious flaws in your concept. You may uncover tough competition while researching the market, or you 6 ■ Y OUR R O AD MAP TO SUCCESS may find that your financial projections simply aren’t realistic. If you intend to seek financing, finish your business plan before approaching investors. Bankers, venture capitalists, angel investors and other financiers won’t provide money with- out seeing a plan. Other investors, like friends and family, may not require a business plan, but they deserve one. Even if you’re funding the business yourself, you owe it to yourself to plan how you’ll expend the resources you’re committing to the venture. And remember, writing a business plan is not a one-time exercise: A business plan should be rewritten or revised regularly to get the maximum benefit from it. Y OUR R O AD MAP TO SUCCESS ■ 7 NOTES A N EXECUTIVE SUMMAR Y IS A ONE- OR T W O -PAGE LOOK AT THE KEY ELEMENTS OF YOUR WHOLE PLAN . Think of it as an expanded table of con- t ents. In it y ou should include your mission and vision statements, a brief summary o f your goals and key strategies, a quick look at your company and its or ganization, and highlights of your financial status and needs. Chapter 1: SUM IT UP Why executive summaries are the most important part of your plan 8 ■ Y OUR R O AD MAP TO SUCCESS SUM IT UP Chapter 1 The Summary Is the Most Critical Part Labor over your summary. Polish it. Refine it. Ask friends and colleagues to look at it, and listen to their input. If your plan doesn’t get the response you want when you start circulat- ing it, suspect a flaw in the summary. The executive summary performs a host of jobs. It should briefly hit the high points of your plan and point readers with questions to the full- length sections of your plan where they can get answers. The point is to ease the task of read- ing the plan by presenting an interesting and compelling account of your company. Your goal is to get an investor who’s scanning your summary enthralled with your concept and excited about the opportunity to participate. Attract Readers Most of your business plan should be fairly dry. It’s inappropriate to use lots of exclama- tion points or incandescent ink. However, the rules are a little looser in the executive summa- ry. Here you’re expected to put on something of a show to try and entice readers into the rest of your plan. You can even use a narrative style here to recount the history of your company as if it were a thrilling saga. In fact, telling a great story is one of the best ways to fulfill the central function of the summary: attracting readers. If you do tell a story in the summary, give it a happy ending. While it’s your duty in your plan to fully disclose to investors any significant risk factors, you can save that for later in the plan. The summary is the place to put your best foot forward—to talk up the upside and downplay the downside. As always, accentuating the positive doesn’t mean exaggerating or lying. If there is a really important, unusual risk factor in your plan—for example, if one spe- cific, big customer has to make a huge order or the whole thing’s kaput—then you really should mention that in your summary. But run-of-the-mill risks like unexpected competition or cust omer r eluct ance can be ignored here. Now’s the time to use the higher end of the market estimates and profitability scales you’ve come up with. Try to paint a convincing portrait of an opportunity so compelling that only a f ool would not recognize it. However, as vital as it is to paint a favorable picture of your busi- ness, it is important to do it concisely. You will lose readers if you use too many meaningless words. Be descriptive, but be succinct. Select Your Best Features In the e x ecu ti v e summary, you particularly want to summarize your strengths. That may seem obvious, but how do you know what your strengths are? And how do you select which ones to pr esent? Man y of the answers to those two questions will depend on whom you’re presenting your p lan to. For instance, if you’re talking to a banker, stress cash flow, management experience and balance-sheet strength. For a partner, the summary should emphasize organizational flex- ibility and prospects for future growth. A venture capitalist will want to read about very high Y OUR R O AD MAP TO SUCCESS ■ 9 Chapter 1 SUM IT UP growth rates, plus some hint that you’ll be ready to go public or sell in a few years. Even if your best points aren’t the kind of things normally included in executive sum- maries, try to include them here because people generally remember what they hear first. In the executive summary, the idea is to focus on your strengths and leave out the information that might distract readers from the positive, powerful image you want to portray. You can address any concerns later on in the plan. For instance, you might say that your plant nursery is “dedicated to cultivating the finest landscaping vegetation in the five-county region.” That sounds nice, so why go into a lot of detail right now about the fact that your plans require you to take on a deeply entrenched, well-regarded competitor? You can talk about that later, after the executive summary has lured readers in. Sometimes presenting your best features is a matter of not mentioning your weak points until later in the plan. If, for instance, you have a great idea for a product but no idea where you’ll have it manufactured, don’t mention that in the executive summary—although of course you have to bring it up later in your plan. Following are some of the areas you’ll want to highlight in your executive summary. Company Description If your company is complex, you’ll need a separate section with a “Company Description” heading to adequately describe your many product lines, locations, services, etc. However, in most cases, you can just briefly describe your company (a few sentences will do). Here are some samples: ■ John’s Handball Hut is the Simi Valley’s leading purveyor of handball equipment and cloth- ing. ■ B o x es Boxes Boxes Inc. will provide the people of the San Jose metropolitan area with a comprehensive source for packing materials, containers and other supplies for the do-it-your- self move. ■ J ohnny AppleCD buys, sells and trades used compact disc musical recordings through our five locations on the north and south side of town. Legal Structure If your firm isn’t complicated in the way it splits up its ownership, responsibility, authori- t y and liabilit y , y ou can describe y our legal structure in a sentence or two buried in the sum- mary. If your business is a partnership, you need to explain the basic terms of your partner- ship so rea ders can understand who’s responsible for what. Y ou might choose to be a C corporation, an S corporation or an LLC. One of the benefits o f a corporation is that it will survive your death. Lenders prefer that security to a proprietor- ship, whose assets and debts simply become part of your estate when you die. 10 ■ Y OUR R O AD MAP TO SUCCESS [...]... funding necessary for your project 16 I YOUR ROAD MAP TO SUCCESS NOTES YOUR ROAD MAP TO SUCCESS I 17 Chapter 3: PRODUCTS AND SERVICES What are you selling? E VERY BUSINESS HAS SOMETHING TO SELL, AND THE PRODUCT SECTION IS WHERE YOU TELL READERS WHAT IT IS YOU’RE SELLING This is clearly a very important section of your plan (for simplicity’s sake, we’ll use the term product to refer to both products and... central importance But the bottom line is this: A business isn’t about financing or a great location or the management team’s experience It’s about having something to sell that people want to buy Keep the importance of your product or service at the front of your mind, and it will help make a lot of decisions easier 22 I YOUR ROAD MAP TO SUCCESS NOTES YOUR ROAD MAP TO SUCCESS I 23 Chapter 4: FIELD... against the flow Or you may be looking ahead to a time when the direction of the tide will change and be preparing your business to take advantage of that change Either way, you’ll have to convince somebody reading your plan that you know how to read the tide charts, and you’ll have to use their power to help you reach your destination YOUR ROAD MAP TO SUCCESS I 27 Chapter 5: MARKETING SMARTS A marketing... in your industry The competitive pricing approach is more concerned with the competition and the cus- YOUR ROAD MAP TO SUCCESS I 29 Chapter 5 MARKETING SMARTS tomer than with your own internal processes It looks at what your rivals in the marketplace charge, plus what customers are likely to be willing to pay, and sets prices accordingly The second step of this process is tougher—it forces you to adjust... are comparatively powerful You can develop a list of competitors by talking to customers and suppliers, checking with YOUR ROAD MAP TO SUCCESS I 35 Chapter 6 COMPETITIVE ANALYSIS industry groups and reading trade journals But it’s not enough to simply name your competitors You need to know how they operate and how they compete Do your competitors stress selective, low-volume, high-margin business, or... care to differentiate YOUR ROAD MAP TO SUCCESS I 11 Chapter 1 SUM IT UP the important features that will sway customers, however, or your efforts to follow a strategy of differentiation may be in vain 3 Niche marketing is the realm of small companies Surviving and prospering in markets too small to attract competitors is one of the things entrepreneurs can do far better than big companies can Focus your. .. I YOUR ROAD MAP TO SUCCESS MARKETING SMARTS Chapter 5 Defining Your Product Product, the first of the four P’s, refers to the features and benefits of what you have to sell (we’re still using that term as shorthand for products and services) You might want to update your product definition and include whatever ancillary services are bundled into your offering There are a number of issues you need to. .. how strong your financial underpinnings are, unless you have something to sell, or at least plans to develop it, you don’t really have a business While many businesses are founded to develop new, never-before-seen products, you still need to describe the planned-for product in your plan 18 I YOUR ROAD MAP TO SUCCESS PRODUCTS AND SERVICES Chapter 3 What Is Your Product or Service? It’s easy to talk eloquently... borrowed money to, say, your salary or perks Use operating income for those purposes Investors like to feel as though they’ve purchased production tools, not country club memberships To that end, if you’re in manufacturing, allocate invested funds to purchasing important equipment—the bigger the better If you’re in retail, use the cash for store fixtures or inven- 12 I YOUR ROAD MAP TO SUCCESS SUM IT... surveys, saying that sore buttocks due to uncomfortable seats is the chief complaint of recreational bicyclists It is important to quantify your market’s size if possible If you can point out that there are more than 6 million insulin-dependent diabetics in the United States, it will bolster your case for a new easy -to- use syringe your company has developed YOUR ROAD MAP TO SUCCESS I 21 Chapter 3 PRODUCTS . security to a proprietor- ship, whose assets and debts simply become part of your estate when you die. 10 ■ Y OUR R O AD MAP TO SUCCESS Y OUR R O AD MAP TO SUCCESS. promoting your product so that it merely seems different somehow. Take care to differentiate Y OUR R O AD MAP TO SUCCESS ■ 11 12 ■ Y OUR R O AD MAP TO SUCCESS